Analysis: The multi-million pound ‘gay divorce’

On 29th March 2012, the Court of Appeal gave its decision in the case of Lawrence v Gallagher, which concerned financial orders made following the dissolution of a civil partnership. The decision received considerable publicity, as it was said to be the first substantial appeal in a financial case involving a civil partnership.

The facts of the case were as follows:

Mr Lawrence is 47 and works as an equity analyst for JP Morgan earning £200,000 per annum net. Mr Gallagher is 54 and has uncertain earnings as an actor and a very small pension.

The couple began cohabiting in 1997, when Mr Gallagher moved into a flat in Clink Wharf, which was owned by Mr Lawrence and remained in his sole name. They entered into a Civil Partnership in 2007 and separated in September 2008.

The first decision in the case was made in the High Court by Mrs Justice Parker. At the time of the hearing before her, the assets were, in broad terms:

• The flat in Clink Wharf, worth £2.4 million with equity of approximately £1,830,000.
• A cottage in Amberley, with equity of £822,000
• Savings and investments of £640,000
• Pensions in Mr Lawrence’s name worth £580,000

By the time of the hearing before Mrs Justice Parker, Mr Lawrence was living in the Clink Wharf flat and Mr Gallagher was living in the Amberley Cottage which he was running as a bed and breakfast establishment.

Of particular importance was the fact that the Clink Wharf flat had been owned by Mr Lawrence prior to the parties cohabiting. There was some evidence that it had been worth £650,000 when the parties began living together so the increase in its value to £2.4 million was considerable. Mr Lawrence argued that the flat was not a partnership asset. He said that Mr Gallagher should have sufficient funds to purchase a property for £420,000 and a pension share of £183,000 (a little under a third of Mr Lawrence’s pensions). Mr Gallagher sought assets with reference to the ‘sharing principle’, but with a discount to reflect Mr Lawrence’s contribution to the assets, to give him 45%.

Mrs Justice Parker broadly adopted Mr Gallagher’s case. She awarded him the cottage in Amberley and a lump sum of £500,000, giving him 42% of the liquid assets. He also received a pension share of £200,000. She indicated that the cottage in Amberley would meet his housing needs and the additional lump sum, after payment of his debts, would provide him with an income of approximately £28,000 net per annum for his life expectancy. He would also have his own earnings and income from bed and breakfast.

Mr Lawrence appealed against the decision. There were a number of strands to the appeal, but the main thrust of his argument was that the Clink Wharf property should have been disregarded in the Judge’s calculations, having been owned by him prior to the relationship commencing.

The Appeal Judges suggested that in their view the case was relatively straightforward. They said that following the separation, the parties each needed a property to live in. It made sense that they should each retain the property in which they were living – Mr Lawrence in the Clink Wharf flat, being his prior to the relationship and close to his work, and Mr Gallagher in the Amberley cottage which was described as ‘his pride and joy’ and which he had demonstrated an ability to run as a bed and breakfast establishment.

Thereafter, the Court needed to consider two issues:

1) Whether there should be a balancing payment from Mr Lawrence to Mr Gallagher to reflect the fact that his flat was worth more than twice as much as the cottage;
2) How much each party needed in order to live comfortably in their own homes. In the case of Mr Lawrence, he was self sufficient by virtue of his income and pension, whereas Mr Gallagher needed more than his modest income and very limited pension provision.

The Court of Appeal determined that to satisfy both of the above points, there did need to be an additional payment by Mr Lawrence to Mr Gallagher, but were of the view that the figure of £500,000 ordered by Mrs Justice Parker was too high. They decided that in addition to the pension share of £200,000 (which they did not seek to criticise) Mr Gallagher needed an additional £350,000 to provide him with an income, which they also considered to amount to a fair share of the available assets.

So what does this case mean for civil partners?

The arguments in the case did not turn on the relationship between the parties, nor their respective roles within that relationship (earner vs homemaker). The arguments were almost entirely focused on the relevance of Mr Lawrence owning the Clink Wharf property prior to the relationship and its large increase in value since then.

As Mr Lawrence is quoted as saying following the decision:

“The case was not in fact about the principles of civil partnership, which are the same as on divorce, but about how to divide assets which were largely brought into the relationship by one party.”

Nevertheless, the case does provide welcome, if not unexpected, clarification that the approach of the courts in cases following dissolution of a civil partnership is exactly the same as in cases following divorce.

Less welcome, to civil partners, is that this means that they too are faced with the current law, which creates the potential for uncertainty and inconsistent outcomes.

Brenda Long is a partner and head of the family team at law firm Blandy & Blandy.